What did Bill Gates know, and when did he know it? During the government's opening statements on Oct. 19 -- the first day of its landmark suit against Microsoft Corp. -- the government accused Gates of being behind a June, 1995, meeting with a rival software company to divide the market for Internet browsers.

Though Gates will not be a witness in the trial, he made a cameo appearance in court when the government showed several minutes of his videotaped deposition taken in August. During these excerpts, Gates denied knowing about an offer his company made to Netscape Communications Corp. until he read about it in a newspaper in April. He even denied knowing what business strategies Netscape was pursuing.

But David Boies, the Justice Dept.'s trial attorney, attacked Gates's credibility by offering up numerous internal E-mails and documents that indicated that the meetings with Netscape took place with the "explicit encouragement of top management." The Netscape meeting is a key piece of evidence for Justice, which contends that Microsoft offered Netscape a deal: It wanted Netscape to sell its browser for use only on operating systems not made by Microsoft. In return, Justice argues, Microsoft would help Netscape out with other technologies, such as its server software for business computers. When Netscape refused, Justice claims, Microsoft used the power of its Windows operating systems to influence other companies not to distribute or use Netscape's browser.

In several documents written days before the meeting, Gates was quoted as saying that Netscape's strategy -- to serve as a platform for which software applications would be written -- would erode the Windows' strength and "commoditize the underlying operating system."

In memos describing a possible offer to help Netscape in developing technologies such as server software, Gates wrote: "I would really like to see something like this happen!!" He also wrote in one document that Microsoft could "buy some piece of them or something" as part of a deal.

Boies said Microsoft is trying now to characterize this meeting as the sort of strategic meeting that goes on all the time in Silicon Valley between competitors. Microsoft claims there was no way that Netscape could have have left the meeting feeling threatened. But Netscape executive Marc Andreessen's notes from the meeting said there was a "threat that Microsoft would own the Windows 95 market and that Netscape should stay away." And a Netscape engineer told an America Online executive in a memo a day after the meeting that Microsoft told them if Netscape didn't go along, "Microsoft would crush them."

After Netscape turned down Microsoft's offer, Boies said, Microsoft set out to kill off Netscape. One method was to give away its browser for free as a way to "deprive Netscape of revenues."

Another method was to choke off Netscape's distribution mechanisms for its browser, Boies contended. He said Microsoft did this by using its Windows dominance as a club to dissuade other companies from using or distributing Netscape's browser.

One key distributor was AOL, an Internet service provider that had been distributing Netscape's browser until Microsoft offered it valuable marketing space on the Windows desktop. In a January, 1996, meeting with AOL, an AOL executive quotes Gates in an internal memo as saying to AOL officials: "How much do we need to pay you to screw Netscape? This is your lucky day."

Boies also argued that Microsoft intended to sell its browser as a stand-alone product if it perceived Netscape's browser as a threat to its operating system. By the end of 1996, however, a series of memos from Microsoft execs indicated that the company decided to integrate the browser to protect its core product. "Our first priority is ensuring that we leverage Windows," according to one note written by Microsoft Vice-President Paul Maritz. In another note in January, 1997, Maritz wrote that "to combat Netscape," the company has "to position the browser and have it go away" -- meaning, says Boies, that "you integrate it so deeply, you combine it in such a way that no one can find where the browser is."

Boies also accused Microsoft of strong-arming Apple Computer Corp. not to use Netscape's browser anymore by threatening to withhold a version of the popular Office business software for Apple's Macintosh operating systems.

Microsoft will present its opening statements on Tuesday morning. Company officials contend that snippets of the E-mail documents presented by trustbusters were taken out of context and that the final documents will show no harmful intent by Microsoft. Netscape President James Barksdale will be Justice's first witness.

By Susan Garland in Washington

Read Business Week's analysis of the Microsoft trial every night Monday through Thursday, for the duration of the case